Public Service Pension Schemes

1. Public Service Pension Schemes

2. In no particular order! • Pensions apartheid’ • ‘Public service millionaires’ • CPI/RPI • Lord Hutton • Lord Turner • Final Salary v CARE • Discount rate • Fair Deal • Cost/risk sharing • Dependency / support ratio • Replacement ratio • Pay as you go • Comprehensive Spending Review • Fixed cost ceiling • Public service ‘framework’ • Pay Review Bodies • Tiered contributions/progressive contributions • Longevity • NEST • Protection of accrued benefits • Defined benefit • Ponzi schemes • Defined contribution

3. The Growing Disparity and Longevity • ONS 2008 data shows there to be 3.6 million private sector employees in DB schemes – there were 6.5 million in 1991 and 8.1 million in 1967 • In contrast there are just over 5 million active members within the public sector in DB schemes and just over 12 million members • Public sector schemes have near 85% take-up whereas in the private sector 2/3rds of employees don’t even receive a pension contribution • Retiring at 60 you could live 40-45% of adult life in retirement. (1950s = 30%)

4. Public Service Schemes - Timeline • 22 June 2010 - Emergency Budget outlined move to CPI indexation • CSR statement of 20 October outlined “progressive contribution increases” • 10 March 2011 – Lord Hutton produced final recommendations for reform • Fair Deal consultation “live” with deadline date of 15 June 2011

5. 1 - Contribution Increases • The Government announced in the CSR a cut in funding to PAYG schemes of £2.8 billion a year by 2014/15 • This equates to just over a 3% average contribution increase for members • Contributions to be phased in “progressively” from 2012, with a 40% saving in 12-13, another 40% in 13-14 and the remaining 20% in 14-15

6. 1 - Contribution Increases (2) • All these savings will be made by higher member contributions • The lower paid will be “protected” • The increases should be ‘progressive’ • Following a meeting with the PSLG the Government has decided to postpone further discussion and consultation to the Summer • This is effectively a Government tax on public service pension scheme members • The Government thinks only 1% will opt-out.

7. What are the current NHSPS contributions?

8. 2 – The Move to CPI • The Government appears committed to increasing public service pensions by CPI instead of RPI from April 2011 • The consequences are significant. CPI is typically, on average, 0.7% per year lower than RPI • The OBR predict that pensions will be 8.5% less by 2017 • Lord Hutton says this move alone represents a 15% cut in benefits

9. What exactly is CPI? • Both CPI and RPI calculate how prices change for a typical basket of goods that people buy to work out the inflation rate • Significantly however the CPI excludes changes to housing costs, council tax, TV licence fees and vehicle excise duty • The Royal Statistical Society, Institute for Fiscal Studies and UK Statistics Authority don’t believe the CPI to properly reflect pensioner spending patterns

10. The Implications of CPI • Pensions are likely to increase from April by 3.1% this year when otherwise would have increased by 4.6% • A woman on the median NHSPS women’s pension of approx £3500pa will be around £53 worse off • A member receiving the overall average public service pension of around £7800pa will be around £117 a year worse off

11. 3 – The move away from a final salary scheme • Lord Hutton stated in his Interim Report of 7 October that final salary schemes “disproportionately” favour ‘high flyers’ • He has recommended switching to a career average scheme for future service by the end of the next parliament – i.e. 2015 • He has stated that each year’s pension earned in a new CARE scheme should increase in line with increases in average earnings

12. What is a CARE scheme? • Career Average Re-evaluation of Earnings • This is a scheme that bases benefits on average pensionable earnings • Such a scheme could potentially benefit members whose annual salary increases are generally less than inflation and who are unlikely to benefit from regular promotions • The devil is in the detail however and the RCN is not necessarily against a CARE scheme as long as it’s not a clear cost-cutting exercise • The new scheme for civil servants is a CARE scheme and GPs have a CARE scheme

13. 4 - Increasing Retirement Ages? • The Government has already brought forward the State Pension Age (SPA) equalisation date meaning that from November 2018 the SPA will be 65 for both men and women • From April 2020 the SPA will be 66 for both men and women. Under current legislation the SPA is due to rise to 67 between 2034-2036 and 68 between 2044-2046 • Lord Hutton has stated that with exception of “uniformed services” NRA’s should increase in line with SPA

14. 5 – The Abolition of Fair Deal? • The Government stated in the CSR that it will launch a consultation on Fair Deal • Fair Deal is the agreements that enable TUPE transferred staff from public services to either remain in such a scheme or be provided with a “certified” broadly comparable scheme • There is a big danger than the Government will look to scrap because of the relative cost to companies bidding for public service contracts • This would leave TUPE transferred staff at the pensions mercy of private contractors

15. A summary of what’s possibly in store • Contribution increases • A move from RPI to CPI for increasing pensions • A move away from a final salary scheme • Increasing retirement ages • A worsening position for TUPE transferred members

16. And don’t forget…. • The contribution increase talks have already been put back to the Summer • Don’t panic, there is nothing to be gained in opting-out of schemes fearing the worst • Both Lord Hutton and the Government have stated that accrued rights will not be affected PUBLIC SERVICE PENSIONS ARE BENCHMARK PENSIONS AND ARE WORTH SAVING!